EK Telecom Analysis Newsletter

iPCS and Sprint: A Short Lived Detente

Related Links

Sprint affiliate sues to block Clearwire deal
iPCS Reaches Detente with Sprint Nextel
Sweet Victory for iPCS

Summary
Trying to figure out the iPCS - Sprint relationship raises some puzzling questions.

Analysis

It's hard to figure out the exact motivation behind iPCS's recent legal action against Sprint to block Sprint from forming its joint venture with Clearwire et al.  As an affiliate, one would have thought that, in light of having recently come to agreement with Sprint over backoffice and roaming fees and the judgment in iPCS's favor on its exclusivity infringement claims regarding Nextel, that an equilibrium had been reached.

One would have also thought that, as an affiliate, iPCS could have offered or negotiated a WiMAX reselling agreement with Sprint.  Afterall, isn't WiMAX competing with Sprint's own CDMA data network as much as iPCS's?  Or, did Sprint, in seeking a pre-emptive declaratory judgment regarding Clearwire holdings in one of iPCS's largest markets, Grand Rapids, essentially pick the scab of the healing wound to cause the relationship to again bleed?  Finally, if iPCS is making a play to be acquired by Sprint, could they have picked a worse time to try to force Sprint's hand, given the financial, operational and strategic basket case that Sprint has become?

Sweet Victory for iPCS

Related Links:

Court Supports IPCS in Fight With Sprint

iPCS Reaches Detente with Sprint Nextel

News Update

As I wrote previously, the longstanding feud between Sprint and iPCS had another chapter written on  March 31, 2008, when an Illinois court ruled in favor of iPCS in its longstanding dispute with Sprint over iPCS claims of exclusivity violations resulting from the Sprint Nextel merger.  With this dispute finally over and the new affiliate agreement iPCS signed recently with Sprint, perhaps both companies can focus more on the future and satisfying customers. 

iPCS Reaches Detente with Sprint Nextel

Related Links: 

iPCS posts greater Q4 loss, inks new affiliate agreement with Sprint Nextel

Sprint Nextel continues to raise ire of iPCS

Summary

The recent resolution of so many outstanding issues between Sprint Nextel and iPCS may be a small indication of yet another culture change at Sprint.  From a Sprint perspective, the question on many investor's minds these days is:  are these changes too little too late to make a difference?

Analysis

When iPCS, the CDMA affiliate of Sprint Nextel, announced operational results last week, the big significance was the  announcement that some of their court claims with Sprint Nextel were mutual withdrawn and new, lower cost per gross add user rates that Sprint Nextel charges affiliates to handle back office services were now in place. 

The feud between iPCS and Sprint Nextel is personal and goes back many years, at least to 2003, when iPCS filed for bankruptcy.  In distress, Sprint had the opportunity to help out its affiliate.  Instead, Sprint refused to help its partner and, as iPCS charged, withheld roaming fees and reduced roaming rates.  Of course Sprint was not obligated to help its partner.  On the other hand, Sprint certainly had the option to not take advantage either.  iPCS did the only thing any red-blooded American company could have done under they circumstances after being kicked while on the ground:   they sued Sprint for breach.  The relationship, of course, went further down from there as both companies played hard ball in every facet of the relationship. 

Some people have suggested that the roaming partners enjoyed the good life, collecting high roaming fees with little financial and operational risk, given that much of the back office operations were outsourced.  (If that were the case in this situation, though, how is it that iPCS filed for bankruptcy at all in 2003?)  Alternatively, from a true partnership and integrity perspective, if a key business partner has problems, you might consider the relationship from a holistic view and not take any failure or minor crack as an opportunity to treat your partner as an enemy.

After the Sprint Nextel merger was announced, as other CDMA affiliates were bought out, little iPCS held out and sued again over alleged territory, marketing and branding breaches related to the Nextel iDEN network competing with the CDMA network.  This time, though, it didn't turn out to be a ploy to get a higher takeover price.  It appeared to be personal.

To be sure, iPCS is a small player, covering about 15M pops and having well under 1M subs.  Its markets are in places like Grand Rapids, Davenport (IA), Scranton and along the Tennessee / Virginia border (i.e., bubba country).

Conclusion

So, although today one of the law suits in Illinois is still outstanding, the resolution of so many of these other issues between the two companies in favor of iPCS (note the CEO public comments of approval as well as the stock market's positive reaction) may be another small indication of a culture change at Sprint, which would be in the direction of treating partners with a win-win long term view.  Either that or Sprint may have just decided that fighting iPCS's only substantial leverage point, the exclusivity breach claim, wasn't worth the legal fees and the risk of losing.  From a Sprint perspective, the question on many investor's minds these days is:  are these changes too little too late to make a difference?